All Forum Posts by: Darryl Dahlen

Building multifamily properties is generally the territory of local banks. HUD has a good multifamily program or larg(er) dollar projects, and the terms are unbeatable, but the closing times are generally prohibitive as it can take 9+ months to close.
Outside of HUD, your best bet is going to be local lender who is interested in deploying their funds in their lending footprint. If the project has merit, you should be able to get a bank to offer a construction to perm loan.

 Negative. Commercial properties use sales comps as well as the income approach in determining the value.

Banks can vary with regards to how they view inexperienced multifamily owners, but there are some who have no issue with it providing you use a professional management company.  

As to getting pre-qualified, there really is no such thing in the commercial world as the loan is primarily based on the property and the income it generates. Your income is not the driving force behind a commercial loan, but it is looked at to ensure your global cash flow is sufficient and you are a worthy guarantor. 

As someone who has more than 10 years in this field I'd be happy to talk to you and give you some advice about commercial financing.

In almost all cases, the bank will use sales comps as the primary basis for value, but they also look at the income approach too. 

A commercial realtor or property management company should have an idea of what CAP rates are for the kind of property you're going to be looking at.

A bank is going to want to see 2 years in the same job field as far as your personal income goes. As to the loan, here is what you'll want before going to talk to a bank:

On you:

• 2 years tax returns
• PFS
• 2 months bank statements
• Your bio/resume that outlines your real estate experience

The property:

• Offering memorandum/flyer
• YTD P&L
• YTD Rent Roll or at least the past 3 months
• 2 years income and expense-ideally
• Photos
• List of any work done or any needed work and estimated cost to cure
• Bio/resume of property management company you plan to use

The more you take into the bank the better feedback they can give you as to what they can do. If the property is local to you, or the property you own, you may be able to see about them using the equity in your current property. You'll likely need 20-25% down, need to show 6-12 months of PI liquid reserves post closing, and meet their internal guidelines with regards the DSCR and global debt service.

It's important to keep apples to apples as threads like this often contain advice that work for residential properties, but won't work in the commercial arena.

Super creative financing "can" work once in a great while, but it's not the norm. I know that's not what you want to hear, but it's better that you do. I've done this for too long and have seen an ocean of people try to start their real estate career based on hail Mary's.

Banks aren't stupid and can see right through what people are trying to do so they'll know if you're trying to cobble a deal together. They're going to look at the source of the down payment to see if the funds are yours or if they're borrowed. They're going to look at your experience to see if you are a capable borrower. Granted, this component can be mitigated to a point by bringing in an experienced partner or by using a reputable PM, but the point is a bank can, and will, see the big picture.

You NEED to have your own funds into the deal for this to have a measurable chance of success. You need to have multifamily experience. If not, find a partner who does or find a good PM. Get those lined and work out the details first.

For commercial loans, a lender is going to want you to put down 20-25% with it being more likely to be 25% than not. They also want to see post closing reserves ranging from 6-12 months of PI. 

It's important to note that banks look at your global debt service ratio as well as the DSCR of the property. Meaning, they want to see that you have the income and reserves to sufficiently pay all of your debt comfortably (banks have their own internal ratios they use) AND be able to keep the property aloft should it need your help. Your personal guarantee only means something to a lender if you have the financial muscle to back it up.

In the past year I've funded over 400+ multifamily units in Houston so I know the landscape there. I'm not a player on 4 units as those are residential, but on commercial loans I'd like to think I'd be an asset. That is, of course, provided you are capable of obtaining commercial financing and have the necessary experience, income/assets.

Small banks are typically the best bet for properties of that size. Sometimes, a small local banks are the best option as they need to deploy their money locally and can often be more competitive than larger banks. Look for 75% and a 25 year amortization.  A 30 year amortization isn't common in the small balance commercial world. 

I'll admit that I haven't had this come up much, but I don't find it odd that a bank wouldn't want to use a SFR as collateral on a commercial deal. There could be a lot of reasons why they are adverse to using it; they want actual cash into the deal, don't want mix assets, too much hassle to babysit another property, etc.